A professor was giving a big test one day to his students. He handed out all of the tests and went back to his desk to wait. Once the test was over the students all handed the tests back in. The professor noticed that one of the students had attached a $100 bill(Sh10,070) to his test with a note saying “A dollar per point.” The next class the professor handed the graded tests back out. This student got back his test, his test grade, and $64 (Sh6,444.80) change.
For once in a long time, Kenyans have been collectively tested on their financial knowledge, and the score is not looking good. The annual reading of the national budget, which traditionally happens in June of every year, is a mundane affair with the ordinary mwananchi hardly bothered by the events in Parliament.
But corporate Kenya pays keen attention for any changes in taxation rates will trigger internal discussions on how that impacts on the pricing of products, and how much of that can be absorbed or has to be passed through to the consumer without hurting sales, the elusive “sweet spot”.
The ordinary mwananchi only wakes up to smell the government budget roses when she goes to purchase goods and realizes that her total basket has become more expensive.
The 16 per cent VAT on fuel products was initially introduced in 2013 but given a three-year grace period for implementation. Using the now familiar process, Treasury carried on the VAT exemption in the Finance Bill 2016 for a further two years.
The can was kicked down the road with the full appreciation that said road would come to a dead end after the election cycle. Because, you know, one doesn’t bite the hand that, you know.
The rolling can came to a shuddering halt on September 1, 2018 when the exemption officially came to an end. Legislators hemmed and hawed about how the Kenya Revenue Authority (KRA) was giving instructions for application of the 16 per cent rate when they had personally removed that nefarious clause via an amendment to the Finance Bill 2018 that was awaiting a presidential signature into law.
But KRA are no fools, having worn the cloak of legal authority from their reading of the original Finance Act 2013 which provided a three-year exemption on application of the tax, which exemption expired in 2016, was further delayed in the 2016 Finance Act to September 1, 2018.
The 2013 and 2016 Finance Acts are law and therefore have been and still are in effect until subsequent law makes any changes to them. Directions were given: Apply the new rate with immediate effect.
How we thought that kicking the now weather beaten VAT exemption can down the road for another two years would be panacea to what ails our budgeting process beats me. Folks, we have a Sh 558 billion deficit. Expected revenues in FY2018/19 are Sh1,997 billion against a budgeted expenditure of Sh 2,556 billion.
VAT is expected to contribute at least 24 per cent or about a quarter to the total revenue. The only way a discussion can be had about reducing fuel related VAT to 8 per cent or kicking the can down the road for an illusionary two more years is if we are willing to discuss chopping off some of the Sh2.5 trillion expenditure.
But that would take time and significant resources to try and unpack where the fat in our recurrent expenditure can be trimmed. Using a zero-based budgeting approach, for instance, would be a good start. With this method, the budget begins from a zero base and every single function within an organisation is analysed not only for its line item needs, but what those cost.
The budget would start from ground zero, rather than an increase or decrease from the previous year. This would provide the much needed granularity in the analysis of what makes up the government’s recurrent expenditure, that is currently budgeted at Sh 1.1 trillion, and how much of it actually requires to be spent or budgeted for based on its impact on service provision to the ordinary mwananchi. Initially an excruciatingly painful exercise for finance and accounting officers in an organisation, it helps to weed out historical inefficiencies in the cost budgeting process.
Today the ordinary mwananchi would say: “kimeumana” (things are tough). Whether it was in 2020 as the MPs were purporting to introduce, or now, the VAT exemption on fuel had to happen.
Because we have bitten the apple from the tree of unchecked expenditure and, dammit, that fruit tastes good. So let’s stop our wailing and gnashing of teeth. It’s getting old. We need to ask harder questions about where our taxes are going to, because boy have we been schooled about tax management!
World Bank pushes G-20 to extend debt relief to 2021
World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.
“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.
He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.
The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.
People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.
For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.
Debt burdens, already unsustainable for many countries, are rising to crisis levels.
“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.
Tighter Reins on Platforms for Mobile Loans
The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.
Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.
Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.
Scope Markets Kenya customers to have instant access to global financial markets
NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options.
This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.
The Scope Markets app offers clients over 500 investment opportunities across global financial markets.
The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.
The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).
The platform also offers an enhanced client interface including catering for those who trade at night.
The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour; Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).
The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.
Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”
He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.